How Long Should You Keep Pay Stubs? A Detailed 2023 Guide
May 02, 2023
‘How long should you keep pay stubs?’ Whether you’re an employer or an employee, the chances are you asked yourself this question at some point while doing paperwork.
The rules for storing paper and electronic pay stubs differ from company to company. It is important to be aware of these guidelines to avoid losing any crucial financial or tax information.
In this article, you will find out how to properly keep pay stubs as an employer and as an employee. You will also learn how to tell when it is appropriate to discard pay stubs and how to do it securely.
- Pay stubs contain employee and employer contact information, employee’s gross and net earnings, taxes withheld, benefits, deductions, and employer contributions.
- Some key uses of pay stubs include providing evidence of the work hours rendered by an employee, providing proof of income, and managing taxes.
- Employers must keep pay stubs for at least three years, while employees can keep their pay stubs for at least one year or until they have filed their taxes.
- Knowing how to properly store and dispose of electronic and paper pay stubs is important to retain the privacy and security of each employee’s sensitive information.
How Long Should You Keep Pay Stubs as an Employer
From an employer’s perspective, pay stubs provide a frame of reference for them to retrace their business expenses and check that their accounting books contain complete and accurate data. Pay stubs can also come in handy when filing employees’ income tax returns and cooperating with authorities in case an employee is under investigation.
At the same time, employees who have resigned might ask for copies of their pay stubs should they need them to apply for a car loan or rent.
Employers are required to secure copies of their employees’ pay stubs for at least three years. Otherwise, they may retain the pay stubs until such time that they have filed their employees’ Form W-2.
If the employee resigns or leaves the company, employers are allowed to keep the employee’s pay stubs for a maximum of 12 months from the date of termination. It would also be best for employers to consult with the state and federal laws in their area governing the conditions for keeping pay stubs.
How Long Should You Keep Pay Stubs as an Employee
Employees may keep copies of their pay stubs for a minimum of one year, or at least until they have completed filing their annual taxes. Pay stubs enable employees to provide all the necessary information on their W-2 forms.
They may also use their pay stubs to check their tax contributions and see whether they qualify for any tax returns or if their employers are dutifully remitting the amounts withheld from their regular pay to the IRS.
What Information Goes on a Pay Stub?
A typical pay stub contains the following information:
#1. General Information
General information refers to the basic details about the employee and the employer:
- Employee and employer (company) name
- Contact number
- Bank details
- Social Security Number (for employees)
- Employer Identification Number (for employers)
#2. Gross Earnings
Gross earnings are the total wages earned by employees before taxes. It reflects the corresponding income earned by employees before federal, state, and local taxes are withheld from their pay.
Each employee’s gross wages encompass the following:
- Hours worked
- Pay rate, or the rate they are paid per hour
- Paid time off
- Overtime pay
The deductions reflected in pay stubs are the amounts withheld by employers from their employees salaries to pay their taxes and voluntary and involuntary contributions.
- Federal taxes
- State taxes
- Local taxes
- FICA (Social Security and Medicare)
- Health or life insurance
- Retirement programs
- Wage garnishments
- Charitable contributions
Some deductions and contributions may differ per employee. For instance, employees can sign a deduction form and permit a specific percentage to be deducted from their insurance or retirement contributions.
At the same time, some employees may be obliged to pay for wage garnishments, depending on their situation.
#4. Employer Contributions
Employers also share a portion of employee contributions, particularly for their FICA taxes. The amount shared by employers in paying the FICA taxes of their staff is not deducted from employees’ salaries.
The reason why it is still necessary to include employer contributions in pay stubs is that they are necessary for calculating the company’s year-to-date (YTD) payroll.
#5. Net Pay
Net pay refers to the employee’s take-home pay. It is the total amount left over from the gross wages after taxes and other deductions are subtracted.
Employers deposit the total net pay into their employees’ bank accounts.
Why are Pay Stubs Important?
Pay stubs are crucial in any work structure wherein an employer hires staff to fulfill specific duties and responsibilities that are integral to sustaining their operations. It is a physical representation of the mutual agreement made between employers and their employees.
Say a company hires a liaison officer. In exchange for the liaison officer’s services, the company pays them a regular salary, ensures their taxes are duly paid, and offers all the basic benefits that employers are required to cover on behalf of their workers. A pay stub covers all of this information.
On top of that, the pay stubs also::
- Clarify disputes or misapprehensions. Pay stubs enable both parties to determine if there are any mistakes in calculating taxes, rates, net pay, etc..
- Increase approval rate for loan and rental applications. Employee paychecks are considered valid documents in assessing an applicant’s capacity to pay for loans and rent. Applicants submit them to landlords and loan application officers to show that they have a stable income source and show that they are trustworthy individuals.
- Tax filing. Saving copies of pay stubs help save time and effort in retracing how much has been paid in each employee’s taxes. Employees can also use their pay stubs as a basis in checking whether they qualify for a tax refund.
How to Properly Store Pay Stubs
If you still use paper pay stubs, you can store the documents in individual folders or envelopes and arrange them alphabetically based on their employees’ surnames. Keep them in a sturdy and secure filing cabinet to save space in the office and protect the documents from external factors that could damage or tamper with them.
These days, the best and safest way to store pay stubs is to save digital copies on a hard drive or in cloud storage. Paper pay stubs tend to get worn out over time and are also susceptible to damages caused by external factors such as calamities, flooding, or fire.
Hence, electronic pay stubs are great alternatives to reduce the chances of misplacing or damaging the documents.
How to Discard Old Pay Stubs
Now that the proper way to store pay stubs has been explained, it’s time to address the question, “What to do with old pay stubs?”
Let’s say it’s already been 12 months or three years. Here’s how to discard old pay stubs safely:
Companies that issue electronic or digital pay stubs should conduct a thorough data wipe on the storage device or hard disk where the files are saved. They must ensure that the data is successfully overwritten to prevent the files from being retrieved.
Meanwhile, paper pay stubs are best run through ashredder before they are compiled in one bag. Shredding the pay stubs prevents any essential employee information from being exposed and used for illegal purposes.
Recycling the shredded pay stubs is an excellent alternative that companies should take into consideration.
How to Make Flawless Pay Stubs in a Few Simple Steps
If you want to make pay stubs without wasting time and effort, you should use an online generator. With it, all you have to do is fill out the template with the required information, and download your document.
Employers and employees alike can easily use our generator by following these simple steps:
- Open the pay stub generator.
- Choose a template and fill in all key company and employee information.
- Preview the document, generate, and download!
When it comes to assessing how long should you keep pay stubs, think twice before disposing of them. It is also crucial to know the proper way to store and secure pay stubs.
Use this article as your handy guide if you want to avoid unnecessary conflict with your employer or staff and save yourself the trouble of the additional paperwork that comes with losing or damaging pay stubs.